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Odebrecht, affiliate fined record $3.5 billion for Brazil bribery scheme

Bloomberg

Odebrecht SA, Latin America's biggest construction company, and an affiliate agreed to pay more than $3.5 billion to resolve bribery allegations involving Brazil's state-run oil company, the largest corruption penalty ever levied by global authorities.

Odebrecht pleaded guilty in Brooklyn, New York, on Wednesday to conspiring to pay bribes in violation of the Foreign Corrupt Practices Act. An Odebrecht affiliate, the petrochemicals maker Braskem SA, also pleaded guilty. The two admitted to paying officials of Petroleo Brasileiro SA, the Brazilian oil giant known as Petrobras, to win contracts.

According to the federal Department of Justice, some of the fraudulent activities were initiated by Odebrecht employees in Miami. A U.S. subsidiary of Odebrecht was instrumental in building the AmericanAirlines Arena, the Arsht Center for the Performing Arts and parts of Miami International airport.

Odebrecht agreed with U.S. authorities to a $4.5 billion penalty, but it said it could pay only $2.6 billion, according to U.S. District Judge Raymond Dearie. The judge said the final number would be determined at an April 17 hearing and said it could be higher or lower than $2.6 billion. Braskem agreed to pay $632 million to the U.S. Justice Department and $325 million to the U.S. Securities and Exchange Commission.

The convictions mark the first corporate resolutions in the U.S. stemming from a nearly three-year investigation of more than a dozen companies in the international corruption scandal known as Operation Carwash, which has helped plunge Brazil into recession. They are probably not the last, however, with the SEC and Justice Department saying their investigations are continuing. Brazil and Switzerland are also investigating the role of individuals and banks, respectively.

“Odebrecht has admitted that for more than a decade it operated an off-books internal financial structure whose sole purpose was to facilitate bribery on a massive scale,” Deputy Assistant Attorney General Sung-Hee Suh said on a conference call with reporters. “This was a hidden but fully functioning Odebrecht business unit – a department of bribery so to speak – that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents.”

The illicit payments were made through “carefully disguised” wire transfers to shell companies or using cash-stuffed suitcases left at predetermined locations, Suh said. In addition to Brazil, Suh said there were 11 other countries where the bribe payments were made. They include Argentina, Angola and Mexico.

Much of the penalty money to be paid to the U.S. will flow back to Brazil, where the Carwash probe started with a focus on illicit payments made to executives at Petrobras. It then spread to other industries in Brazil, implicating construction companies, shipyards and leading politicians from several parties.

Of the penalties to be paid by the companies implicated in the scandal, 80 percent will go to Brazil as reparations to help counter the negative effect of the scandal on the nation's economy, the Justice Department said. The remaining 20 percent is to be split between Switzerland and the U.S.

In the Brooklyn federal court on Wednesday, Odebrecht general counsel Adriano Chaves acknowledged the company's role in the conspiracy and entered a guilty plea. Braskem's general counsel, Gustavo Sampaio Valverde, also entered a guilty plea for the company.

“Odebrecht's biggest challenge now is to generate cash to pay the penalty. I've never seen such a big penalty,” said Carlos Gribel, the head of fixed income at Andbanc Brokerage in Miami who used to recommend Odebrecht group bonds to his clients. “It will have a smaller pipeline, a smaller structure, but will survive.”

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